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Lean in Finance
Kevin Dilton-Hill

what happens in a
ean is now a key
Lean has been successfully adapted to meet the
Lean project.
part of any prochallenges of finance and accounting processes.
gram for Finance
This article distinguishes Lean from Six Sigma,
Transformation. Lean
LEAN VERSUS SIX
provides the resource
showing why Lean does not translate directly from
SIGMA
savings to invest in
the factory floor to Finance. It then explains key
improvements and to
Lean has often
Lean methods to identify what Finance customfund the transformabeen
grouped with
ers want, and then links this directly into process
tion program. Lean
Six
Sigma
as a single
design and performance measures. The result
identifies where proset of tools. And
can be eliminated errors and better control risk
cess improvements can
while a pragmatic
in processes. The articles finishes by outlining an
be made to do things
approach is to use
approach to Lean projects. 2015 Wiley Periodicals, Inc.
better, quicker, and
whatever tool suits
cheaper: Thats right:
the circumstances,
Lean can deliver on all
Lean and Six Sigma
involvement of the people who
these at the same time.
have very different mind-sets.
actually perform the process is
Exhibit 1 summarizes the
Exhibit 2 summarizes the two
one of the fundamental prinLean improvement work the
approaches. It may seem arcane
ciples of Lean.
author was involved in at a large
to worry about the differences,
This article looks at what it
multinational bank. We identified
but the real implication is in
takes to deliver these kinds of
opportunities to reduce the time
the mind-setsthe approach
benefits, including:
taken to produce quarterly, halfto what they do. Six Sigma
year, and year-end stockholder
spends a considerable amount
How Lean achieves its
reports by 38%. We identified
of time measuring before startresults;
five key initiatives that could be
ing improvements. Lean relies
Key Lean tools, methods,
implemented in a 6- to 9-month
on observation and inquiry and
and mind-set; and
time frame, and none of it
starts improvements almost
What an effective Lean proj- immediately.
involved any significant change
ect looks like.
in information technology (IT).
These were not consultant
DIFFICULTIES WITH LEAN
The article starts by contrastopportunities; these were opporing Lean and Six Sigma and then
In many organizations, the
tunities that the people involved
considers why Lean sometimes
Lean initiative starts on the facin the process and their managedoes not appear to work in
tory floor and then migrates into
ment accepted as part of their
Finance. It also takes you through transactional processes such as
objectives for the coming year,
a case study demonstrating
procure to pay and order
and ultimately delivered. This

2015 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).
DOI 10.1002/jcaf.22030

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The Journal of Corporate Accounting & Finance / March/April 2015

Exhibit1
Group Finance Achievements

Exhibit2
Lean Versus Six Sigma

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The Journal of Corporate Accounting & Finance / March/April 2015

to cash. People who have succeeded in these projects then

move into Finance expecting
more of the same, but this is not
the case. Finance thinks that the
Lean people dont understand
what they do, and the Lean
people think that Finance is
being difficult. The end result is
predictable; the results are not
as good as everyone hoped, and
often its failure. Why is this?
Exhibit 3 summarizes some of
the main issues.
Finance is different; it is
not a just slight variation on
the theme of transactional
processes. In addition to the
challenges noted in Exhibit 3,
one has to redefine what waste
(a core Lean concept) means
(see How Lean Achieves Its
Results below).
In the authors experience,
only minor improvements can be
achieved when Finance people
are actually doing their work
with all the information that they
requirewhen they are actually
preparing the journal entry with

all the facts at hand, for example.

The big savings come from all
the to-ing and fro-ing to get the
information that they need, from
the rework because information
is not right the first time, and
from many needless and ineffective checks, reviews, and compliance controls.

HOW LEAN ACHIEVES ITS

RESULTS
Lean focuses on eliminating waste. In Lean, on the factory floor eight wastes were
identified, remembered by the
acronym TIMWOODS (see
Exhibit 4), each of which can be
translated into what is found in
Financethings such as sending
information by e-mail, waiting
for information or for someone
to do something, copying and
pasting, work waiting for action,
producing reports that are no
longer required, performing controls that are ineffective, errors or
late completion, and work being
performed by too senior people.

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Each step in the processes

is reviewed to assess whether
or not it is wastethat is,
whether or not it is adding
value (value added, or VA).
If it is, one may want to invest
additional resources to do it
better. If it is nonvalue added
(NVA), it should be eliminated.
If it is necessary nonvalue
added (NNVA; i.e., essential
to sustain the business), the
resources it consumes should
be minimized. This categorization of each step provides the
blueprint for improvement:
do it better, eliminate it, or
minimize the cost.
Finance is not a function that
customers would view as part of
what they are buyingwhat they
are spending their money on. So
from the perspective of the business as a whole, it would at best
be viewed as NNVA.
We need to redefine what
VA means from Finances perspective so that we can apply the
VA, NVA, and NNVA categorization to their processes (refer

Exhibit3
Why Is Lean Difficult to Apply in Finance?

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Exhibit4
Waste: TIMWOODS

Exhibit5
Waste Analysis

to Exhibit 5). First, we question

whether the process needs to be
done at all. It is surprising how
many processes fail this critical
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test. If the process needs to be

done, then any task that is essential to deliver the process objectives is value adding. Other tasks

are then evaluated in terms of

NVA and NNVA.
Finance processes are typically 20% VA, 40% NVA, and
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The Journal of Corporate Accounting & Finance / March/April 2015

40% NNVA, thus yielding savings of 30% within six months

to a year. Investment in IT may
be required to release further
savings over a longer time frame.
Waste or nonvalue adding
may be words that your people
feel uncomfortable about, so
you may need to find a synonym
such as Not right first time.

LEAN TOOLS, METHODS, AND

MIND-SET
Lean is primarily a mindseta way of looking at the
world. However, over the years,
practitioners have developed a
large number of tools and methods based on Lean that are very
helpful in specific circumstances.
See, for example, The Lean Six
Sigma Pocket Toolbook by
Michael George et al. (McGrawHill, New York, 2005) for 100 or
so of these. For example, cellular manufacturing is a different
approach to organizing the management approach, workflow,
and layout of a factory. The

author has observed spectacular improvements in quality

and productivity following its
implementation in an electronics assembly factory. However,
it took almost 15 years before
the author was able to identify
a process in a service industry
where the principles applied. Its
implementation there achieved
similar spectacular results. However, in addition to analyzing
waste, there are a small number
of tools that are relevant in
almost every improvement program. These are discussed next.

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these in terms of how important they are to the customer.

Identify the key process steps
that deliver those outputs to the
required standards of quality,
and then determine the measures
that the process needs to monitor that the outputs are being
delivered. This usually means
deciding what process measures
need to be stopped so as not to
overmeasure the process. As the
process is being reengineered,
one needs to revisit the Voice
of the Customer to ensure that
these requirements are being
built into the process.

Voice of the Customer

Understanding what the customer wants from the process is
the starting point and the most
critical part of Lean improvement. Exhibit 6 summarizes the
approach; start by identifying
customers and how they interact
with the process (the contact
points). Then speak to each
customer to determine what they
want from the process; classify

SIPOC
A SIPOC (SupplierInput
ProcessOutputCustomer)
is a one-page summary of the
process being reviewed (see
Exhibit 7). If one wants to
review what someone does, then
they are part of the process; if
not, then they are a supplier or a
customer. This enables a precise
definition of the process to be

Exhibit6
Voice of the Customer

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Exhibit7
SIPOC Form

reviewed. Start on the right with

the customers, the outputs that
they receive, and the Critical to
Quality requirements for these
outputs. This information comes
from the Voice of the Customer.
Try to summarize the process in
no more than six to eight broad
steps. These will be broken down
into more detail when VA/NVA
analysis is performed. Then
identify the suppliers of information and data and define the
Critical to Quality criteria for
these inputs.

viewed as NVA, a red dot; and if

NNVA or business sustaining, a
blue dot. The author has found
that the most efficient way to
do this is record each step on a
worksheet projected so everyone
can see it. The worksheet has
columns for the step and any
other analytical information
about this step. The other columns often are:

Value Stream Analysis

Lean processes are called
Value Streams, so the evaluation of each step in terms of VA,
NVA, or NNVA is referred to as
Value Stream Analysis. Generally, the process is mapped out
on Post-it notes and then the
team discusses each step to identify waste. If the step is viewed
as VA, it gets a green dot; if it is
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The grade of person doing

the step to identify waste
from overskilling a task.
The volumes and unit
times to determine how
long the step takes. If the
work being done is not
homogeneous, then one
can break a task out by
category of work.
If one is analyzing the
close process, it would
include the day when the
task is done.
The VA, NVA, or NNVA
analysis. If the team think

that the task is, for example, part VA and part NVA
because some rework is
done, then break the step
up to identify these parts
separately.
Ideas that the team has
for improvements. At this
stage, these are not discussed but noted for the
reengineering phase that
follows.

If you would like an example of this spreadsheet, please

e-mail the author. The calculation of the VA, NVA, and
NNVA time for each step allows
the pie chart in Exhibit 1 to be
prepared.
When the reengineering
phase of the project is done,
then further columns in the
worksheet are added to cater for:

What the improved step is;

the VA, NVA, and NNVA
analysis of the improved
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The Journal of Corporate Accounting & Finance / March/April 2015

step; the grade of staff to

do it; and how long it will
take.
The grouping of improvement suggestions into
themes or implementation
projects.
On whom the improvement
depends for its implementation. Is it within the team,
the Finance function, the
wider business, or IT?

At this point, we know what

the customer wants, we know
the scope of the process under
review, and we know in detail
where the problems are in the
process. The question now is
what improvements should be
made. In many situations, this
may be fairly obvious, and there
are a number of Lean tools
that can provide great insights.
Lets focus on the solution to
two problematic situations in
Finance. The first is how to
remove complexity from a process, and the second is how to
overcome backlogs without adding resource.

Runners, Repeaters, and

Strangers
What starts off as a
relatively simple process soon
becomes complex as more rules
are added to handle unusual
transactions. The author has
observed people staring out the
window as they click through
checklists; the implications are
obviouspeople are not applying their minds; all they are
doing is wasting time. In almost
every process review that we
perform, we start by finding out
if there are Runners, Repeaters,
and Strangers as described in
Exhibit 8. If there are, then a key
part of the approach to reengineering the process is to strip
out the steps added to handle
unusual transactions and to create the steps to handle Strangers
outside the process.

Kanbans
A Kanban, or demand-pull
process, is a way of controlling
the flow of transactions. In

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clerical work situations, a

Kanban is a highly effective way
of reducing backlogs without
adding resources. In a backlog
situation, we tend to push the
work out to our people to try
to pressure them into working
faster; this creates huge amounts
of work-in-progress. In reality,
this is counterproductive. Littles
Law states that the lead time in
a process (the time from when
a transaction is put into the
process until it exits complete) is
equal to the amount of work-inprogress divided by the average
completion rate (i.e., the number of transaction completed
per unit of time, be that hours,
days, etc.). Thus, if one wants to
shorten the lead time to speed up
the process, one can either reduce
work-in-progress or increase
the average completion rate; the
latter means reengineering. By
knowing the lead time required,
one can calculate the optimum
level of work-in-progress. To
implement this removes work
from your people and stores it in
a buffer area. When a work unit

Exhibit8
Runners, Repeaters, and Strangers

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Exhibit9
Reducing Work-in-Progress (Creating a Kanban Pull System)

is completed, then another is

withdrawn from the buffer. This
is illustrated in Exhibit 9.
Withdrawing work from
your people may seem counterintuitive, but this actually works;
backlogs are reduced quickly,
and thereafter, provided the
rules for releasing work from
the input buffer are well thought
out, customer service levels also
improve.

Summary
We have reviewed key
methods and tools for Lean;
the Voice of the Customer to
identify what the customer
wants from the process; the
SIPOC to define the scope
of the process; Value Stream
Analysis to identify waste;
Runners, Repeaters, and
Strangers to identify how to
reduce complexity; and Kanbans for reducing backlogs
and controlling work flows.
Now lets review a case study to
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demonstrate what happens in a

Lean improvement project.

LEAN CASE STUDY

The company is a large
retailer of food and clothing. As
such, it has a large vendor base
with reasonably high turnover
it adds approximately 3000 new
vendors per annum. As shown in
the SIPOC (see Exhibit 10), the
buyers are the customers of this
process. What they want is the
Vendor setup correctly in time
for them to place their orders.
The process took around
125 minutes over a period of
10 days to add one vendor. The
process map is shown in Exhibit
11. This is not supposed to be a
work of art because the process
is about to be changed.
The Value Stream Analysis
identified that 41% of the time is
NVA, which is equivalent to 340
full-time equivalent (FTE) days
or almost two peoples time.
This is shown in Exhibit 12. The

primary issues were that vendors often completed the wrong

forms and thus information was
missing; the vendor information
received from buyers was often
wrong; and there were often
errors in capturing the data onto
the vendor master file.
Armed with these facts, we
can now start reengineering the
process. It is usually a good idea
to ask if there is a totally different way of achieving the process
objectives. In this case, who has
the biggest vested interest is
ensuring that the correct information is entered quickly? Obviously, the vendor; so the big idea
was self-service for vendors.
The initial idea was to develop a
web area for vendors, but it was
soon apparent that IT would
have to be involved; and we all
know how long that can take.
However, it would be easy to
make a spreadsheet file available
for vendors to download, complete, and upload. Another part
of Finance had a utility to copy
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Exhibit10
Add Vendor SIPOC

Exhibit11
Process Map of Add Vendor

data from spreadsheets on the

IT system. Further investigation
showed that these ideas would
work, so a new process was devel 2015 Wiley Periodicals, Inc.

oped around them. The new process resolved each of the primary
issues. The buyers were enthusiastic as it cut their work and recent

vendors agreed that there was no

extra effort for them. The revised
process was then evaluated on
the same basis as the old process
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Exhibit12
Summary of Value Stream Analysis

were also identified as meeting the

key controls requirements for this
process, thus ensuring proper control despite the substantial reduction in timeall in all, a better,
quicker, and cheaper process.

LEAN PROJECT APPROACH

using Value Stream Analysis, as

shown in Exhibit 13.
In the new process, all NVA
was eliminated (this is not often
achieved) and the total amount

of time was reduced from 125

minutes per vendor to 50 minutes,
a saving of 500 days or 2.5 FTE.
The elapsed time was cut from
10 days to 3 days. Steps 1 and 7

We have found that irrespective of the size of the process

being reviewed, the structure of
a successful Lean project is the
same. Our approach is illustrated
in Exhibit 14. We have found it
better for Finance people to take
up only half a day for workshops, leaving the rest of the
day for normal tasks; it also prevents people from becoming too
jaded, thus improving input.
We have also found that it
is better to cut the scope of the
process being reviewed to ensure
delivery at the end of week
rather than overrunning. This
approach ensures achievement
that builds momentum very
quickly. Additional time can be
created for workshop time if
all the data required for day 1

Exhibit13
Value Stream Analysis of the New Process

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Exhibit14
Lean Kaizen Workshop Five Half Days

is prepared in advance and the

feedback is developed and presented in the following week.

CONCLUSION
We have discussed why
Lean is the right approach

for Finance, but it needs to be

used empathetically with a real
understanding of the nature of
work Finance undertakes. We
have shown a Kaizen approach
to Lean projects that delivers
improvements at a fast pace.
And we have discussed a num-

ber of Lean tools and methods

that are used on most projects.
But the real benefit over time
will be how people approach
their work; if the Lean mindset can become embedded then
continuous improvement will
also become embedded.

Kevin Dilton-Hill is managing director of JSK Solutions, in Brighton, England. He specializes in working
with Finance to improve processes so that they take less time, have improved quality, consume fewer
resources, and lead to improved risk management.

2015 Wiley Periodicals, Inc.

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